Intro
In general, there are two types of companies stocks. One is common stocks and another one is preferred stocks. Most people trade or buy common stock when they are investing through brokerage account. This common stock can be acquired through initial public offering or IPO and secondary market (like NASDAQ, New York Stock Exchange, AMEX, etc). Some of the common stocks do pay dividend. This dividend paying common stock is typically known as dividend stocks or income producing stocks.
On the other hand, preferred stock is considered as less risky than common stock. It may be less liquid than common stocks. Preferred stock is named because it has preferential rights in matters such as liquidation and board representation. It is rated like bond with ratings range from AAA (top rated) to D (worst rated) or unrated. If the company declares bankruptcy, the preferred stock holders are entitled to the company’s assets before common stock holders.Best Income & Preferred Stock CEFs
Closed End Funds can be used to invest in preferred stocks and other income producing securities. These funds are typically diversified into variety of asset classes and sectors. The 10 best income and preferred stock closed end funds of 2012 are:
- John Hancock Premium Dividend (PDT)
- TCW Strategic Income (TSI)
- DNP Select Income Fund (DNP)
- Flaherty & Crumrine/Claymore Total Return (FLC)
- Flaherty Preferred Income Opportunity (PFO)
- Flaherty & Crumrine /Claymore Preferred Securities (FFC)
- John Hancock Preferred Income (HPI)
- John Hancock Preferred Income 2 (HPF)
- Flaherty Preferred Income Fund (PFD)
- John Hancock Preferred Income 3 (HPS)
The investment objective of John Hancock Premium Dividend fund is to provide high current income with modest capital appreciation. It utilizes its assets to purchase dividend paying preferred stocks and common stocks. This closed end fund is managed by Mark Maloney and Gregory K Phelps.
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| J Hancock Premium Dividend |
This best ranked fund has a year to date return of 3.88%. The fund has returned 37.60% over the past 3 year, 11.80% over the past 5 year, and 10.37% over the past decade. In 2008, the fund has an annualized return of -21.71%. Morningstar has rated this fund with 5 star and silver rating.
As of March 2012, this CEF has 104 holdings in its assets. The top 8 holdings are: H Energy Group Inc, Alabama Power Preferred, Wells Fargo & Co pfd, PPL Electric Utilities Preferred, Nexen Preferred, MetLife Pfd, Qwest Preferred, and Duquesne Lt Pfd. The top 5 sectors are: utilities (52.5%), financials (27.13%), energy (9.29%), telecommunication service (6.89%), and consumer staples (1.95%).
2. TCW Strategic Income (Ticker: TSI)
This TCW Strategic Income fund invest majority of assets in convertible and marketable equity securities, bonds, mortgage related securities, asset backed securities, and money market securities. This multisector closed end fund has a distribution rate of 6.68%. This yield is distributed on quarterly basis.
Its total net assets are $290 million. The annual expense ratio of this top CEF is 1.26%. This TCW fund is ranked with 4 stars. The annual holdings turnover rate is 40%. As of April 2012, it also has 315 holdings.
The top 5 countries in its assets are: USA (115.94%), UK (1.78%), Bermuda (0.97%), Cayman Islands (0.75%), and Barbados (0.47%). The top 5 sectors include: collateralized debt (65.22%), long term corporate debt (20.59%), asset-backed securities (10.31%), general equity (1.27%), and derivative (1.29%).
3. DNP Select Income Fund (DNP)
The DNP Select Income Fund objective is to seek current income and long term income growth. This Duff & Phelps fund uses its assets to buy equity and fixed income securities of companies in the public utilities industry. Nathan Partain is the fund manager since 1998.
This equity income fund has total net assets of $3 billion. The fund’s effective leverage is 33.08%. This fund market price is traded at 28.38% premium to its fund NAV. It also has an expense ratio of 1.97%. The dividend yield is 7.29%. The fund performance for the past 5 years is as follow:
- Year 2011: 29.70%
- Year 2010: 11.46%
- Year 2009: 61.07%
- Year 2008: -6.62%
- Year 2007: 5.42%
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| Flaherty/Claymore Total Return |
This preferred stock closed end fund has a yield of 8.79%. This yield is distributed on monthly basis. The fund’s total expense ratio is 1.98% (including 0.84% management fee, 0.51% other expense, and 0.62% interest expense). Its effective leverage is 33.32%. The year-to-date return is 5.02%.
As of April 2012, the top 5 sectors include: bank (37.5%), utility (25.6%), insurance (25.2%), energy (6.1%), and miscellaneous (3%). The top 5 stocks in its assets are: Santander Fin Pfd, Liberty Mutual Group, Capital One Capital Iii FRN, Georgia Power Pfd, and Enbridge Energy Partners L P FRN.
5. Flaherty Preferred Income Opportunity (PFO)
This Flaherty Preferred Income Opportunity fund has annual expense ratio of 2.13%. The fund’s total net assets are $187 million. This preferred stock CEF is managed by Eric Chadwick since 1992. This fund is introduced to public on February 15, 1992.
This PFO fund has returned 42.58% over the past 3 year, 7.59% over the past 5 year, and 7.23% over the past 10 year. The annual holdings turnover rate is 24%. The top sector is preferred stocks (91.72%).
7. John Hancock Preferred Income (HPI)
The investment aim of John Hancock Preferred Income fund is to seek high income and capital preservation. It utilizes its assets to purchase undervalued preferred securities. Mark Maloney and Gregory K Phelps are the fund co-managers.
The total net assets of this preferred stock fund are $809 million. Its annual expense ratio is 1.74%. The dividend yield of this CEF is 7.43% and is paid on monthly basis. The fund best 1 year return was achieved in 2009 with 37.88%. Its 5 year annualized return is 7.68%. Its annual portfolio turnover is 16%.
This closed end fund is rated with 3 stars and silver rating by Morningstar. The top 5 sectors are financials (52.17%), utilities (26.46%), telecommunication service (8.45%), energy (6.28%), and consumer discretionary (2.30%).
Disclosure: No Position
Other Closed End Funds Post:
- Best High Yield Corporate Bond Closed End Funds 2012
- Top Performer Real Estate Closed End Funds July 2011
Fund Performance
| No | Fund Description | Ticker | Market Return % | Lipper Rank | Premium / Discount | Leveraged Assets | Expense Ratio | Yield |
|---|---|---|---|---|---|---|---|---|
| 1 | J Hancock Premium Div | PDT | 11.60% | 10 | -2.09% | 32.77% | 1.87% | 6.73% |
| 2 | TCW Strategic Income | TSI | 11.54% | 10 | -4.63% | 16.23% | 1.26% | 17.13% |
| 3 | DNP Select Income Fund | DNP | 9.81% | 15 | 30.18% | 34.15% | 1.95% | 7.72% |
| 4 | Flrty/Claymore Tot Rtn | FLC | 8.57% | 20 | 2.15% | 33.76% | 1.98% | 9.00% |
| 5 | Flrty Pfd Income Oppty | PFO | 8.04% | 24 | 10.27% | 33.85% | 2.12% | 8.58% |
| 6 | Flrty/Claymore Pfd Secs | FFC | 7.96% | 29 | 5.05% | 33.88% | 1.64% | 9.30% |
| 7 | J Hancock Pref Income | HPI | 7.86% | 34 | 6.00% | 32.64% | 1.74% | 7.64% |
| 8 | J Hancock Pref Income 2 | HPF | 7.58% | 39 | 5.26% | 32.72% | 1.72% | 7.62% |
| 9 | Flrty Pfd Income Fund | PFD | 6.99% | 43 | 15.16% | 33.81% | 2.08% | 8.09% |
| 10 | J Hancock Pref Income 3 | HPS | 6.34% | 48 | 4.24% | 33.26% | 1.72% | 7.56% |
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